Further, the DPA will usually state that any such contradictory statement constitutes a breach of the DPA that would subject the corporation to prosecution.
The determination as to whether a public statement is contradictory is left to the prosecutorial office with which the DPA is reached, with the DPA typically providing for a 48-hour period following notification by the government of the possible breach in which the corporation may repudiate the offending statement and avoid being held in breach. Often, the DPA will specifically exclude statements made by a corporation’s employees in actions where the employees are parties, so long as the individual is not making the statement on behalf of the corporation.1
The requirement to refrain from making any contradictory statements is in keeping with Department of Justice’s desire to engage the organization’s complete cooperation in an investigation. The Deputy Attorney General McNulty’s Memorandum, “Principles of Federal Prosecution of Business Organizations” (McNulty Memorandum), cites among the many factors to be weighed in deciding whether or not to criminally prosecute a corporation,
as well as
the corporation’s remedial actions, including any efforts . . . to cooperate with the relevant government agencies.
The McNulty Memorandum does not specifically refer to a corporation’s agreement not to contradict any of the factual assertions made against it as being a factor in deciding whether or not to prosecute it. However, it is reasonable to assume that a prosecutor will perceive as being less than cooperative a company that attempts to settle with the government on the one hand and deny the allegations against it on the other.
The McNulty Memorandum also requires prosecutors to consider “the collateral consequences of a corporate criminal conviction . . . .” and specifically directs that “[p]rosecutors may take into account the possibly substantial consequences to a corporation’s officers, directors, employees, and shareholders, many of whom may . . . have played no role in the criminal conduct, have been completely unaware of it, or have been wholly unable to prevent it.”
The McNulty Memorandum further states that “[p]rosecutors should also be aware of non-penal sanctions that may accompany a criminal charge, such as potential suspension or debarment from eligibility for federal contracts or federal funded programs such as health care.”
DPAs Can Be Nuclear Too
As stated earlier, it is the desire to avoid a nuclear result for the corporation that has led to the DPAs’ frequent utilization in recent years.
However, agreeing not to contradict any factual assertions in a DPA can have precisely the effect that the agreement seeks to avoid. An organization that is prevented from contradicting any of the factual assertions made against it could face debarment even though it does not stand convicted of a crime.2
Moreover, private litigation can present a heightened danger to the corporation that enters into a DPA. Its ability to defend itself against suits by private citizens and entities can be significantly hamstrung by such a provision prohibiting it from contradicting the DPA’s factual assertions.
For example, a pharmaceutical company settling a claim that it sold one of its products for an unapproved, or “off-label” use, or that it wrongfully paid physicians to prescribe its products, might find itself at a profound disadvantage in defending itself against class action products liability suits, even if its actions did not harm any patients.
Or a company resolving an environmental charge might have difficulty in defending itself against private litigants, even if its violations did not harm any persons or the environment. Under such circumstances, the DPA’s aim of avoiding the company’s demise would be in jeopardy.
Avoiding the Admissions
Some recent DPAs indicate that under the right circumstances, the corporation might be able to avoid admitting to the conduct alleged by the government.
Late last year, four leading manufacturers of orthopedic implant devices, Biomet, DePuy Orthopaedics, Smith & Nephew and Zimmer,3 entered into DPAs with the U.S. Attorney for the District of New Jersey in connection with their having made payments to orthopedic surgeons in the form of consulting agreements to induce the surgeons to use their implant devices.
The U.S. Attorney did not require any of the four to admit to any of the charges, or to covenant that they would not issue any statements contradicting any of the charges. Indeed, the civil monetary settlements that four of the manufacturers entered into with the government stipulated that the manufacturers specifically denied having violated any laws, and that the settlement agreement was not to be deemed an admission of any facts by the manufacturers.
The government’s acquiescence was important, if not crucial, to the DPAs serving their purpose. Consider what would have ensued if the companies had been compelled to agree to the language prohibiting them from contradicting the allegations, only to have been sued by plaintiffs claiming
(i) that they had been given surgical implants that they did not actually need, as a result of bribes the companies had paid to the patients’ surgeons, or
(ii) that bribes had been paid for the insertion of implants that turned out to be defective.
Such a scenario would have been devastating to the companies and could have dealt a severe, if not fatal, blow to the industry.
In another case occurring in the Western District of Virginia, English Construction Company, a major construction outfit in Virginia, entered into a DPA with the government after it was discovered that its former director of human resources had falsely represented in a report that the company was in compliance with Disadvantaged Business Enterprise (DBE) subcontractor hiring requirements on a Virginia highway project, which was partially funded by the federal Highway Administration.4
In the DPA, English Construction admitted only that “former Director of Human Resources Max Guggenheim was involved in the falsification of a report that was submitted within the jurisdiction of the United States Department of Justice in violation of 18 U.S.C. §1001.”
Further, the DPA contained no clause providing that a contradictory statement by the company would constitute a breach of the agreement. Presumably, this allowed the company to avoid debarment from participating in projects that have government funding.
An Alternate Strategy
Even if the attorney cannot persuade the government to remove language from the agreement prohibiting any contradictory statements, it might still be possible to avoid the negative implications engendered by the corporation’s admissions.
Prior to the medical device settlements and the English Construction investigation, it appears the closest any company came to avoiding the collateral damage of a clause prohibiting contradictory statements was in the case of Operations Management.5
Operations Management ran a wastewater treatment plant in New Haven, Conn. that was required to maintain chlorine levels in the effluent below a threshold level, and multiple daily tests were required to monitor those levels. According to the statement of facts annexed to the DPA, when chlorine levels exceeded the threshold, Operations Management employees would discard the test results, modify the chlorine level, and then record new test results, in violation of the Clean Water Act’s reporting requirements.
In addition, Operations Management was accused of failing to report several solid waste washouts that had occurred at the facility, also in violation of the Clean Water Act.
Operations Management’s DPA with the U.S. Attorney’s Office for the District of Connecticut included the standard language that forbade it from making any public statement contradicting anything contained in the statement of facts. However, the statement of facts itself included the following:
“There is no evidence that the reporting violations described above resulted in harm to human health or the environment.”
By including this language, Operations Management was better able to defend itself against any theoretical civil suits that might have ensued.
Practical Tips
The attorney negotiating a DPA for a corporate client can draw upon these settlements for guidance.
As the examples above reflect, prosecutors will consider limiting, or waiving altogether, language precluding contradiction of factual assertions, if it appears that the inclusion of such language will leave the company defenseless against a mass of plaintiffs’ or class action claims, or will eviscerate its business because of debarment.
The attorney should be prepared to educate the prosecutor as to the nature of the client’s business and show how it is especially prone to such collateral consequences. In this regard, practitioners should be aware that there do not appear to be any cases involving financial fraud in which prosecutors have been willing to grant any concessions with respect to the language barring contrary statements.
The attorney must also convince the government of the organization’s contrition through means other than admission to all of the alleged facts, and of the effectiveness of those other means. Thus, if it has not done so already (which is always preferable), the corporation should be prepared to jettison individual wrongdoers, institute a detailed and effective compliance program designed to prevent the acts or omissions that led to the investigation from occurring again, provide restitution to identifiable, wronged parties, and bring to the government’s attention facts that the government might not have otherwise discovered.
In addition, the attorney should be in a position to show that whatever might have occurred at the corporation was not the result of a pervasive culture, and that whatever culture might have engendered such behavior no longer exists.
Because the alternative is criminal prosecution, there is a belief among some that the corporation is usually not in a position to negotiate a DPA’s terms. However, Department of Justice guidance counsels prosecutors to consider corporate interests. And, as these settlements indicate, in the right case, the government might make valuable concessions.
James M. Keneally is a partner in the white-collar crime and investigations group at Kelley Drye & Warren. David D. Bassett, a law clerk at the firm, assisted in the preparation of this article.
Endnotes:
1. Examples of the language used in DPAs can be found in a myriad of cases. See, e.g., the DPAs in United States v. Monsanto Company, Docket No. 1:05-cr-00008-ESH (D. D.C. 2008); United States v. Sigue Corporation and Sigue, LLC, Docket No. 4:08Cr. 0054RWS (E.D. Mo. 2008); United States v. Ingersoll-Rand Company Limited, Docket No.1 07 Cr. 294 (D.D.C. 2007); United States v. NETeller plc, Docket No. 1:07-cr-00597-PKC (S.D.N.Y. 2007); United States v. Baker Hughes Incorporated, Docket No. H-07-130 (S.D. Tex. 2007); United States v. ITT Corporation, Docket No. 7:07 Cr. 22 (W.D.Va.); United States v. Aibel Group Limited, Docket No. H-07-005 (S.D. Tex. 2007); United States v. Abt Associates Inc., Docket No. 1:06-cr-10426-JLT (D. Mass. 2006); United States v. Bank Atlantic, Docket No. 06-60126 (S.D. Fla. 2006); United States v. Roger Williams Medical Center, Docket No. 06-2T (D.R.I. 2006); United States v. SSI International Far East, Ltd., Docket No. 3:06-cr-00398-KI (D. Or. 2006) (Schnitzer Steel Industries Inc. DPA).
2. See, e.g., 48 C.F.R. §9.406-2.
3. See United States v. Biomet Orthopedics Inc., Mag. No. 07-8133 (MCA) (D.N.J. 2007); United States v. Depuy Orthopaedics Inc., Mag. No. 07-8131(MCA) (D.N.J. 2007); United States v. Smith & Nephew Inc., Mag. No. 07-8132 (MCA) (D.N.J. 2007); United States v. Zimmer Inc., Mag. No. 07-8130(MCA) (D.N.J. 2007). A fifth manufacturer, Stryker Orthopedics, received a non-prosecution letter and was not required to pay any monetary amount, because it was the first of the manufacturers to notify the government of its conduct.
4. See United States v. English Construction Company Inc., Docket No. 6:07 Cr. 00010 (W.D.Va. 2007).
5. See United States v. Operations Mgmt Intl Inc., Docket No. 3:06-cr-00017-EBB (D. Conn. 2006).
